This year was supposed to be a mixed one for stocks, with rising interest rates, stubbornly high inflation, and lower commodity prices expected to be headwinds for Canadian and U.S. stocks. But it hasn’t turned out that way. In spite of economic uncertainty, the S&P 500 is up 17.5% year-to-date, the NASDAQ has rallied an impressive 35%, while the TSX is up a more modest 4.5%.
As we close in on the end of the year, investors may be wondering what’s in store for the S&P 500 and TSX in 2024? It’s a tale of two indices.
Investment strategists at Goldman Sachs said they expect the S&P 500 to end 2024 at 4,700. At current levels, this points to upsides of approximately 6%. A decent gain, but still below the S&P 500’s January 2022 record high of 4,797.
The first half of the year is expected to be roughly flat with returns concentrated in the back half of 2024, which is when the bank believes the U.S. Federal Reserve will begin cutting interest rates.
Morgan Stanley has set an end of 2024 price target of 4,500 for the S&P 500, which is where it is currently trading at, implying no upside. Wells Fargo and UBS Global Management are also in line with this modest growth projection. Wells Fargo has a high price target of 4,800 (+6.6% upside) with a 4,700 target from UBS (+4.4%).
All of these estimates are well below the S&P 500’s typical average annual returns of 10%, which excludes dividends.
Will the TSX Hit New Highs in 2024?
At the start of 2023, analysts predicted the TSX would reach record levels in 2024 as China’s reopening boosted commodity demand and the Bank of Canada adopted a dovish take on interest rate hikes.
The TSX was predicted to end 2023 at 21,500 (it’s currently at 20,096) and rise to 22,500 by mid-2024, broaching the previous closing high of 22,087.22 in March 2022.
Opinions have changed since then on where the TSX will go in 2024. Consensus earnings estimates have been falling since last year with year-over-year third quarter profits expected to come in 1.3% lower.
On top of that, corporations are using creative accounting to make their earnings look better, this includes one-time charges, impairment charges, and non-cash expenses to juice their profits results.
According to one forecast, the TSX could finish 2024 at 19,760, that’s 2.1% lower than where it is today.
Why the marked difference? The U.S. economy is doing well while the Canadian economy is stalling. U.S. consumers are spending, Canadian consumers are cutting back. U.S. businesses continue to invest in buildings, equipment, and inventories while Canadian companies are puling back.
Canadian gross domestic product contracted between April and June and has stalled since then. South of the border, GDP grew 2.1% in the second quarter and advanced 4.9% in the third quarter.
On the plus side, weakness in the Canadian economy could result in the Bank of Canada pivoting on its rate hike policy, introducing the first cut in the first half of 2024.
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